Physicians beware: OIG scrutinizes medical director relationships

In a Fraud Alert issued June 9, 2015, the Health and Human Services Inspector General officially stated what the healthcare sector has known for years—the OIG doesn't like medical directorship arrangements for referring physicians. In relevant part, the Fraud Alert states:

Physicians who enter into compensation arrangements such as medical directorships must ensure that those arrangements reflect fair market value for bona fide services the physicians actually provide. Although many compensation arrangements are legitimate, a compensation arrangement may violate the anti-kickback statute if even one purpose of the arrangement is to compensate a physician for his or her past or future referrals of Federal healthcare program business. OIG encourages physicians to carefully consider the terms and conditions of medical directorships and other compensation arrangements before entering into them.

OIG recently reached settlements with 12 individual physicians who entered into questionable medical directorship and office staff arrangements. OIG alleged that the compensation paid to these physicians under the medical directorship arrangements constituted improper remuneration under the anti-kickback statute for a number of reasons, including that the payments took into account the physicians’ volume or value of referrals and did not reflect fair market value for the services to be performed, and because the physicians did not actually provide the services called for under the agreements. OIG also alleged that some of the 12 physicians had entered into arrangements under which an affiliated healthcare entity paid the salaries of the physicians’ front office staff. Because these arrangements relieved the physicians of a financial burden they otherwise would have incurred, OIG alleged that the salaries paid under these arrangements constituted improper remuneration to the physicians. OIG determined that the physicians were an integral part of the scheme and subject to liability under the Civil Monetary Penalties Law.

Medical directors can provide valuable services to healthcare providers. Nevertheless, it should be assumed that the medical director relationship will later be analyzed by the OIG with 20/20 hindsight and profound skepticism. It is crucial to document the nature and purpose of the relationship, the basis for the compensation structure, and the fact that the contracted services were actually provided. Investing in a compliance review before entering into the medical directorship can save substantial time, aggravation, and money on the back end.